FACTS ‘N’ FIGURES — Transitions in South Africa

On the surface, little remains of Anglo American/De Beers Consolidated Mines, Anglo-Transvaal Consolidated Investment (Anglo Vaal), Gencor, Gold Fields, Johannesburg Consolidated Investment (JCI) and Rand Mines — South Africa’s traditional Big Six mining interests.

Anglo American has concentrated its activities and sold off JCI, which has since become the first black-owned mining house; Gencor spun off all of its base metal business and merged with Gold Fields; Anglo Vaal has begun a process of internal change; and Rand Mines, now Randgold, which was facing a serious financial crisis, became the first South African mining company to restructure itself.

Nonetheless, the changes in South Africa have been neither the biggest nor the most spectacular in the world. In 1994-95, out of total worldwide mergers and acquisitions valued at US$10 billion, deals involving South African companies accounted for around 12 to 13 per cent.

The largest South African-related transaction during that period was the takeover of Billiton by Gencor. In the following 12-month period, the number of mining deals worldwide increased, though South Africa’s participation in them was diminished. Worldwide, mining deals in 1995-96 were valued at US$16 billion, but the country accounted for only 4% of that total.

South African activities stepped up from July 1996 to June 1997. Deals made by companies there amounted to $2.7 billion, or 20% of worldwide mergers and acquisitions during that period. Gencor topped the list, buying out Alusaf for $816 million. The next biggest transaction was African Mining Group’s acquisition of 35% of JCI for $579 million.

>From 1994 to the present, Gencor has been the most active company, engaging in deals worth US$2.7 billion. The second most active company during that period was Anglo American, which spent US$1.9 billion on mergers and acquisitions.

It is a sign of just how closed the industry still is that most of the restructuring is being conducted internally. The country’s financial system bolsters this exclusivity, permitting pyramid ownership control arrangements through relatively small equity holdings (as in family-owned Anglo American and Anglo Vaal).

But in spite of the speed of structural transformation and internal corporate reorganization, gold mines are facing massive layoffs. The mining industry, which has peaked in terms of the number of its employees and production levels, has shed 150,000 jobs in the past four years.

The sector is entering a new phase, in which downscaling will be necessary, and in which century-old habits and traditions will have to be changed or abolished. This contraction phase will be painful for the miners themselves, in particular migrant workers from Mozambique and Lesotho.

Industry, government and unions now must find ways of alleviating the burden of closing unprofitable mines and minimizing the risk of the social unrest that could result from the dismissal of tens of thousand of miners.

The industry’s role as a major supplier of minerals and metals has diminished over the past 20 years. South Africa produced almost 75% of the world’s supply of gold in 1975, compared with 25% in 1996.

The industry has also lost ground in base metals production, albeit at a slower rate than in the gold sector. South Africa’s grip on the production of ferro-alloys has tightened, however, and the country has also gained control in the iron ore and titanium markets. South Africa’s production of gold may not be what it once was, but companies are expanding into the production of copper and other base metals.

— The preceding is from a report by Stockholm-based Raw Materials Group, which conducts research into natural resources.